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money investment, investment help
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5/03/06 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: None issued
Stop alerts: None issued
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SUMMARY:
- If Tuesday was up, then Wednesday must have been down.
- March Factory orders surge as Q1 data shows, as it should Q1 GDP was strong.
- April ISM Services index is white ho . . ., err, strong.
- Market once again in search of a leader as money continues to be restless. Semiconductors up to the challenge?
Yesterday's leaders become today's laggards, and the laggards, well, remained laggards.
Tuesday energy stocks enjoyed a rebound from recent selling (and buying, and selling, and buying) while technology lagged with NASDAQ remaining below its 50 day EMA after falling through that support Monday. Wednesday was a new session, and after oil flirted with $75/bbl once more this week, it peeled back $2 (72.28, -2.33) after gasoline inventories rose an unexpected 2.1M bbl after 9 weeks of declines. Maybe the refineries are finally catching up with supply after the maintenance and retooling to ethanol closures kept gasoline supplies running low and even spot shortages in Texas and elsewhere.
That halted energy stocks in their advance, sending some sharply lower while others simply stalled for the session If money tried to rotate out into new leadership, however, it did not really find it. SP500 slid back to the 18 day EMA while NASDAQ churned once more below the 50 day EMA, both indices losing ground on rising volume. That shows another distribution session for both indices, though they also showed that higher volume above support; that suggests buyers were stepping in at this level to some degree, but they were clearly unable to push stocks higher.
There was some leadership trying to emerge in the semiconductors as good moves started popping up in that sector as SOX cleared its 50 day EMA, trying to make that higher low a reality. That helped NASDAQ come back late in the session, bouncing back from undercutting support at 2300. SOX showed some promise Tuesday and followed through a bit Wednesday. Good thing; NASDAQ needs its help.
There is plenty of money in the world looking for a home, but it has nervous feet here in the US market. The choppy action continued again, down after a Tuesday upside, at least on NYSE. Energy is certainly nervous as well as oil has tapped at $75 twice and has faded. Even so, energy stocks and the market in general remain in their uptrends though the back and forth action is certainly a grind on investors. NASDAQ remains a key issue as it remains below the 50 day EMA, falling below that level after a series of distribution sessions in April. It has something to show us here if it can.
THE ECONOMY
March Factory Orders surge. Q1 was indeed impressive.
More data from Q1 is still trickling in, but after the initial Q1 GDP final (only the government could have an initial final) has already been released, the data does not have a whole lot of impact. It is like reminiscing about the good old days: boy was that Q1 2006 hot, I tell you what. Or, remember when NASDAQ hit 5000? Significant historical events, but they have little bearing on the future in many cases (you know, past performance does not guarantee future results).
Wednesday more Q1 data came in and factory orders were no doubt strong, coming in at a 4.2% growth clip versus the 3.7% expected and the 0.4% in February (revised higher from 0.2%). There was strength across the report, but as usual the driver was transportation: as with auto sales from 2003 to 2005, retail sales were up or down based on what autos did that month. With factory orders, the big swing factor is transportation, particularly civilian aircraft. Those orders jumped 71.3% (Boeing is glowing). Take out transportation and orders were 2.2%; not bad, but not as explosive as the headline number indicates.
Non-defense capital goods less transportation, a long way of saying business orders, rose a strong 3.9%. Businesses remain flush with money and they were once again spending it in March. That, however, is yet another lag effect from the 2005 storms. Q4 investment was lower overall and Q1 2006 was something of a catch-up quarter where delayed spending was made after shortages and deliverability issues arose in the wake of the storms. Strong no doubt, and some of the momentum continues into Q2.
In the end the numbers show a strong end to Q1 and April is not showing a whole lot of slowing. Annual growth for March was 11.6%, another strong month. Orders have hit a plateau the past 3 years at this level, however. Not a bad place to have a plateau, of course, but the name of the game in economics is trends. This 11%ish level has marked the peak in expansion cycles in 1994 and again in 2000. As noted above, past performance does not necessarily predict the future, but this level of activity has, on the last two times it was hit, signaled the high water mark. With oil brushing $75/bbl again Wednesday before rolling over intraday, this is one to be noted and kept on the back burner along with the other economic watchpoints in this oft mentioned 'boom' economy.
ISM Services is 'too hot to touch.' At least they didn't say 'white hot.'
Both manufacturing and service sectors came in stronger than expected for April. Wednesday the service sector reported a 63.0 reading, up from 60.5 in March and topping expectations for a decline to 59ish. The stronger ISM and the surging services ISM are the most current evidence that the Q1 strength is slopping over into April and Q2. As noted over the weekend, there are a lot of early calls that Q2 is going to surge as well; not the 4.8% gain but in the low fours.
The momentum is definitely there. The early Q2 data has shrugged off oil hitting $75/bbl twice and gasoline prices blowing through $3/gallon. Those are our key price levels for both products, levels we expect some demand issues to start cropping up. We are hearing a lot of anecdotal comments from consumers cutting back on gasoline purchases, but that has yet to filter into the data. We are very interested in the same store sales data to come. Estimates are for a 6.5% gain down to a 5.3% gain; neither one is chicken feed. With Easter in April that will help, but we want to see if the consumer is really as strong with that surge in gasoline prices over a week period.
The guts of the ISM services were solid as well. Jobs rose to 56.5 from 54.6. New orders surged to 64.6 from 59.5. Inventories rose 5 points. That is strong stuff. Of course, prices rose as well, jumping to 70.5 from 60.5. Seems the high energy costs are pushing up service costs.
This strong April data is fueling a lot of fervor over an economy that is running too hot. Expectations are for a cooling over the next three quarters, and that is something of a comfort. That is different from early 2000 when the 'new economy' was going to push higher and higher with no end in sight. 'White hot,' 'red hot,' and 'runaway consumer' were thrown about on a daily basis as everyone bought off on the idea that prosperity is not necessarily a good thing. Given the alternative we got to experience in the following three years, however, no doubt most would agree that prosperity is much better. Hell, if the market had collapsed on its own, would it have been worse than what the Fed did? Likely not. When we interfere with natural ebb and flow of markets you create imbalances. You ultimately have to stop tinkering, and when that happens the snap back is much more violent than if the market had simple risen then fallen on its own.
Right now the economy is strong and leading indicators still show expansion though at a slower pace. That is not bad. That presupposes, however, oil does not move to $75/bbl and holds up or moves higher. For now it has backed off when hits those levels; that may indicate some demand inelasticity at that level, i.e. demand falling off at that price. Unlike many we still take the view that oil prices can and will impact the economy negatively if they continue to climb through $75/bbl. Thus what is strong now is not so strong in the future as the 'tax' of high energy prices exacts its toll on the economy. That is why we still very much believe Bernanke is going to pause after the May meeting, passing in June and July before looking at another rate hike in August if the economy still looks strong.
THE MARKET
MARKET SENTIMENT
VIX: 11.99; 0
VXN: 15.58; -0.21
VXO: 11.45; +0.32
Put/Call Ratio (CBOE): 0.91; +0.03
Bulls versus Bears:
Bulls: 45.4%. Bulls continued their second week of decline, falling from 48% and 53.2% before. After a month climbing close to the 55% level considered bearish, a much needed decline. It rose from 42.3% on the low this cycle, a level below the prior lows in May and October 2005. It is already heading back down to that level.
Bears: 25.8%. Faded slightly from 26%. Just a one-week blip higher thus far after declining for a month as bulls rose simultaneously. Rebounded from 24.5% the prior week but still well off its high at 33% for this cycle, a level that topped the prior two highs that gave way to strong rallies. The 20% level and below is considered bearish. It started this move just above 20%, the threshold level. Bears surpassed the readings from the two prior market bottoms in May and October 2005 (30% and 29.2%, respectively).
NASDAQ
Stats: -5.87 points (-0.25%) to close at 2303.97
Volume: 2.176B (+2.71%). Volume moved higher and remained above average as NASDAQ reached down to 2300 and rebounded to hold that level. It closed negative on the session, however, so even with the rebound there was distribution once more on NASDAQ. They keep piling up, kind of kicking NASDAQ while it is already down.
Up Volume: 821M (-318M)
Down Volume: 1.32B (+384M)
A/D and Hi/Lo: Decliners led 1.02 to 1. Breadth was flat, coming back well as NASDAQ rebounded in the afternoon. That indicates that the higher volume was not all distribution as NASDAQ rebounded.
Previous Session: Advancers led 1.3 to 1
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Once more NASDAQ waved at but did not attempt to break back through the 50 day EMA (2314). The early rebound attempt faded early and NASDAQ fell, undercutting support at 2300 on the low. The late rebound pushed it back above that support for the close, keeping NASDAQ in the game though still in no-man's land below the 50 day. The longer it hangs out below that level the more troublesome the twin peaks in April look. The second peak was on strong upside volume, so it is not a classic double top pattern. If NASDAQ continues distributing, however, it erodes the accumulation to this point.
SOX (1.24%) holds out some promise for NASDAQ. SOX has improved its stance over the past month, making higher lows and moving back above the 50 day EMA (513.71) Wednesday, trying to turn this pullback into a higher low in its 9 week pattern. Wednesday several leading semiconductors displayed solid action (e.g. LRCX, WFR, NVDA from Tuesday). SOX is showing better action and is in position to try and lead techs higher.
SP500/NYSE
Stats: -5.36 points (-0.41%) to close at 1307.85
NYSE Volume: 1.738B (+0.92%). Volume rose as SP500 faded back to the 18 day EMA, showing some distribution. SP600 posted a modest gain as it tested near support and bounced. Given the action in SP500 Tuesday and the Wednesday action in SP600 we don't view this as a necessarily negative session.
A/D and Hi/Lo: Decliners led 1.33 to 1. Very modest downside breadth, but lower nonetheless even as SP600 managed a gain. With the leading energy and commodities under pressure breadth was a bit negative even with SP600's gain.
Previous Session: Advancers led 1.73 to 1
New Highs: 194 (-33)
New Lows: 102 (-7)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 stalled out once more below 1317 after a good move Tuesday, failing to test that level Wednesday as it dropped down to test the 18 day EMA (1305) on the low. Still holding near support as it moves laterally right at its recent highs. The selling Wednesday was disappointing; once more SP500 is unable to piece together a strong, steady move. Nonetheless it continues holding support and setting up for the next try at near resistance at 1317 that has stalled it out over the past month.
SP600 (+0.04%) showed a nice doji on the candlestick chart, tapping near support at the 18 day EMA (394.15) on the low and then rebounding. That shows buyers ready to move in at near support as SP600 continues working on a higher low, holding its uptrend and setting up for the next break higher. SOX and SP600 are growth areas that are setting up for the next move higher. In a market with $75/bbl oil and $3/gallon gasoline, for growth areas to beak higher once more would be a very good indication for the market and the economy.
DJ30
Very modest loss on the Dow, showing no ill effects at all Wednesday, just pausing over the 10 day EMA (11,346) and rebounding to close. Volume jumped higher above average, but DJ30 remains in solid shape above the March highs. It refuses to give up its breakout and indeed give up any ground at all. Somewhat defensive but still strong across the board (outside of its technology components). Still in a solid uptrend and leading higher, very similar to SP600.
Stats: -16.17 points (-0.14%) to close at 11400.28
Volume: 380M shares Wednesday versus 335M shares Tuesday. Solid trade as DJ30 continues to work higher.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Many undercurrents continue and the market action reflects that with its up one day, down the next action. To this point it has continued to advance though a major growth index (NASDAQ) took a hit on the MSFT and other large cap earnings reports and has yet to recover. NASDAQ struggled again Wednesday, but the losses were minimal as the large cap techs started to recover from their weakness (of course, MSFT still fell hard). In addition, the semiconductors show some positive signs; their improvement helps NASDAQ not only as components of NASDAQ but also as an indication that growth is not necessarily dead even with $75/bbl oil and $3/gallon gasoline.
Thursday we start getting the same store sales for April, and expectations run from 5.3% to 6.5%. Strong showing as it is anticipated the late Easter will help push sales sharply higher than a rather weak March. That will somewhat skew the results and not give a really clear picture of how $3/gallon gasoline started to impact consumers. Of course if it falls well short of expectations the impact will be obvious. From what we are hearing in spot reports and what the retail stocks are showing, sales were still solid for the month.
We will continue to watch the semiconductors on Thursday; the patterns are good and of course the implications of a semiconductor rebound bode well for the market and the economy. What was good about Wednesday was that despite the losses in many sectors, there was no breakdown and areas showed signs of attempting to move up to leadership. On the market's up day (down Wednesday so up Thursday, right?) that attempted leadership should blossom if it is for real.
This market has shown amazing resilience in the face of issues that would have sent it into a black hole in 2005 in early 2005 or indeed even in the fall of that year. It is at a point it needs to show something with a rebound in NASDAQ and more than a day and one-half or so of gains followed by a day or so of give back. With oil at $75/bbl we definitely feel it is at an inflection point; oil has rallied to 75 twice and pulled back twice as the market has tried to move higher but haltingly. We like what we see in some chips and with this action we will continue to look for some opportunity as they continue to improve and join the other areas that continue to trend higher, e.g. energy, metals, and other commodities, along with some new interest in the health and medical stocks (market has to have a bit of defense in there given the volatile action).
Support and Resistance
NASDAQ: Closed at 2303.97
Resistance:
The 50 day EMA at 2314
The late January highs at 2325
2328 from the May 2001 peak
2329 is the October/March up trendline.
The 18 day EMA at 2326
The January high at 2333
The February closing high at 2361
2477 is the January 1999 peak
2493 is the February 1999 peak
2523 from the December 2000 low
3015 is the December 2000 peak and the October 2000 low
Support:
2300 from the April intraday lows.
2288 from December 2000 low.
2278 is December 2005 intraday high.
2273 is December 2005 closing high.
A minor peak at 2249
2240 is closing low in recent range.
S&P 500: Closed at 1307.85
Resistance:
1311 is the March intraday resistance on this move.
The October/March up trendline at 1312
1315 is the May and May 2001 peaks
1317, the recent intraday highs from April.
1324 to 1329 from the October 2000 lows.
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
1371 to 1373 is the December 2000 peak and the January 2001 peak
Support:
The January high at 1303
The 18 day EMA at 1305
1297.57 is the recent February high.
The 50 day EMA at 1296
The late January peak at 1285
The December highs at 1275 (intraday) and 1273 (closing)
1264 from the December 2000 lows
1254 is the February low
1248 to 1250 is the bottom of the November/December 2005 range
Dow: Closed at 11,400.28
Resistance:
11,417 from the recent April highs.
11,425 from April 2000 peak
11,452 from December 1999 peak
11561 is the DJ30 closing high
Support:
11,401 from the September 2000 peak and the recent intraday highs
11,350 from the May 2001 peak is giving way.
The recent March highs at 11,329 to 11,335
The 10 day EMA at 11,346
The 18 day EMA at 11,302
11,187 is the October/January/February up trendline.
The 50 day EMA at 11,187
11,159 is the February high.
11,137 is the last peak from the February top.
11,044 is the January high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
May 1
Personal Income, March (8:30): 0.8% actual versus 0.4% expected, 0.3% prior
Personal Spending, March (8:30): 0.6% actual versus 0.4% expected 0.2% prior (revised from 0.1%).
Construction spending, March (10:00): 0.9% actual versus 0.4% expected, 1.0% prior (revised from 0.8%)
ISM Index, April (10:00): 57.3 actual versus 55.1 expected, 55.2 prior.
May 3
Factory Orders, March (10:00): 4.2% actual versu 3.7% expected, 0.4% prior
ISM Services, April (10:00): 63.0 actual versus 59.4 expected, 60.5 prior
Crude oil inventories (10:30): -0.226M prior
May 4
Initial jobless claims (8:30): 310K expected and 315K prior
Productivity, preliminary, Q1 (8:30): 2.8% expected, -0.5% prior
May 5
Non-farm payrolls, April (8:30): 200K expected, 211K prior
Unemployment rate, April (8:30): 4.7% expected, 4.7% prior
Average workweek (8:30): 33.8 expected, 33.8 prior
Average hourly earnings (8:30): 0.3% expected, 0.2% prior
Consumer credit, March (3:00): $4.1B expected, $3.3B prior
End part 1 of 3
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